Despite delivering record revenue in FY17, its PATAMI came in below expectations due to higher-than-expected cost components. While we continue to like OCK for its attractive growth prospects and growing recurring revenue stream, we are likely to revise our numbers lower, pending an analysts’ briefing today. Our OUTPERFORM stock call and target price of RM1.05 are currently under review.

Below expectations. FY17 PATAMI of RM24.6m (-7.5% YoY) came in below expectations at 76%/74% of our/market consensus full-year estimates. On our end, the key culprits were mainly due to: (i) lower- than-expected contributions from the Telecommunication Network Services (“TNS”) segment (which we believe was partially due to the lumpy engineering works contribution as well as lower tower lease income contribution) and Green Energy division, and (ii) higher-than- expected administrative expenses, finance cost and forex translation. A first interim single-tier dividend of 1.0 sen per share was declared in late December in respect of FY17.

YoY, FY17 revenue improved by 21% to RM485m as the higher TNS increased by 24% to RM416m, mainly underpinned by its tower leasing business from Myanmar and Vietnam. OCK had completed more than 780 towers in Myanmar (of which 713 towers were built for Telenor Myanmar with the balance belonging to MyTel under the build and lease model). It customers list now includes all the major MNOs in Myanmar, which includes Telenor, Myanmar Posts and Telecommunications (“MPT”), Telecom International Myanmar Company Ltd (“Mytel”) and Ooredoo Myanmar Ltd. In Vietnam, its operation there continued to bear fruits from existing 1,983 telecommunication sites (backed by the long- term lease rentals) which were acquired through the acquisition of 60% of SEATH in early 2017. PBT meanwhile was higher by 5% to RM44m as a result of higher turnover and better margins recorded in its Green Energy segments. TNS segment’s PBT margin, however, was recorded lower at 9.0% (vs. 9.4% a year ago) due to higher overhead costs. To date, regional revenue had soared to contribute 33.5% of the group’s total turnover vs. 20.0% a year ago. QoQ, 4Q17 turnover was up by 7%, with positive contributions from all segments, except the TNS and green energy divisions. PBT, however, dipped by 10% as a result of higher administrative and finance costs.

Outlook. The group is set to continue benefiting from the rapid network expansion plan undertaken by various telcos in the OpCos countries. We understand that the group seeks to venture into other Indo-China countries for greenfield/brownfield opportunities to own more telecommunication sites to achieve its vision of becoming an ASEAN Tower co. and increase its recurring income stream. Apart from focusing on the telecommunication business, we understand that the group is also sourcing for more business and/or investment opportunities in the sustainable energy sector which is rapidly growing in demand.

Under Review. We made no changes to our forecast and target price for now, pending an analyst’s briefing today. Having said that, we are likely to cut our FY18E numbers by 10%-20% to reflect the disappointing results. Our current stock rating is OUTPERFORM with a target price of RM1.05 derived by DCF-methodology (WACC: 8.0%; TG: 1.5%).

Source: Kenanga Research - 27 Feb 2018